Contractors See Lucrative Market for School Services

Spurred by rising costs and aggressive corporate sales efforts, a
growing number of school districts are hiring private contractors to
clean their buildings, bus their students, operate their cafeterias,
and provide other vital services.

Although national statistics are difficult to come by, experts agree
that many school officials are increasing their use of such
contractors, following the lead of other local authorities, state
agencies, and the federal government.

Advocates of the policy, known as "contracting out," argue that
private vendors--a group that includes both small businesses and
multibillion-dollar corporations--can provide schools with better
services at lower costs.

And in an era of widespread hostility to big government and higher
taxes, some officials have seen political benefits in contracting-out
plans, which can lead to big reductions in school payrolls.

"A belief in big government has given way to a tendency to believe
in the power of private enterprise to deliver higher-quality services
more efficiently and less expensively," noted a 1986 study of the
contracting policies of state and local agencies in Wisconsin.

Such claims, however, are hotly contested by public employees and by
the powerful unions that represent them.

Many of the personnel reductions claimed by contractors are
illusory, union advocates argue, as workers are merely shifted from
public to private payrolls.

Fighting contracting out is a top priority for the American
Federation of State, County, and Municipal Employees, which represents
approximately 100,000 bus drivers, custodians, food-service workers,
and other noninstructional employees.

"School districts are looking at any way they can save money, and
the contractors are running to them and saying, 'Well, we can do this
or we can do that,"' said Linda Lampkin, afscme's director of research.
"The pressure is increasing."

Afscme and other unions charge that service contracts often end up
costing more than the in-house operations they replace.

Many vendors, they argue, submit unrealistically low bids to win a
contract, then seek sizable payment increases later to recoup their
losses.

"What we often see is that costs will be lower in the first couple
of years of a contract, but then go up dramatically after that," added
Jackie Lamb, a consultant with the accounting firm of Deloitte, Haskins
and Sells. "By that time, a contractor can really have you."

Such cost problems, Ms. Lampkin said, can lead private firms to pare
back staff and services to the bare minimum required by the
contract.

"They fulfill the terms of the contract but they don't do the job,"
Ms. Lampkin said. "Our folks have a broader concept of what the job is
and are willing to take the extra step to look out for the kids."

A Sizable Market

Executives at several major contract firms strongly defended their
record of performance, but agreed with Ms. Lampkin that school
districts and other education agencies have become major sales
targets.

The size of the market alone is extremely attractive to potential
vendors, experts said.

School cafeterias, for instance, are collectively the second-largest
food-service operation in the nation, serving 27 million meals a day,
according to the American Association of School Administrators.

Currently, only about 10 percent of those meals are provided by
contractors, a fact that has lured a number of major firms into the
market, including Marriott Inc., Canteen Corporation, and ara
Services.

The ara firm, which already has contracts with 175 districts
nationwide, recently signed a service agreement with school officials
in Lubbock, Tex. With more than 30,000 students, Lubbock is the largest
district so far to contract for food service.

"They felt we could provide features they couldn't afford
themselves, like more on-site preparation," said Colleen Sheerin,
director of marketing for ara's school-nutrition division.

Transportation Targeted

In transportation, too, the trend is towards greater contracting.
The number of school buses owned by private vendors increased by nearly
12 percent between the 1983-84 and the 1984-85 school years, according
to Phil Fixler, a policy analyst with the Reason Foundation, a
libertarian group that strongly supports "privatizing" government
services.

Robert Salerno, a top official with ServiceMaster Company, said the
Illinois-based firm now manages custodial and food-service operations
for more than 400 education agencies around the country.

Nearly 90 percent of the firm's customers, he said, retain their own
staff of employees, who are supervised by a team of managers from
ServiceMaster.

Salaries are still set by the district, and staff unions continue to
bargain directly with district officials.

"The unions worry that we are going to come in with a truckload of
minimum-wage workers and throw them out," Mr. Salerno said. "But that
isn't our program at all."

ServiceMaster's contracts are on a firm fixed-cost basis, he added,
requiring the firm to absorb any cost overruns. "If we can't perform at
the level we say we can, we aren't going to be there very long," he
said.

In other districts, contractors have moved aggressively to cut costs
by paring back staff and increasing productivity. In Coos Bay, Ore.,
the number of classified employees in the city school district was cut
from 145 to 60 after officials there contracted out bus and food
services, according a report in National Educational Assocation's
newspaper NEA Today.

But school districts can obtain the advantages of contracting while
still protecting their current employees from some of the harsher
effects of a cost-cutting drive, one expert argued.

"You can negotiate just about any kind of contract to protect your
employees," said Irene Lober, professor of education administration at
the State University of New York and a former district
superintendent.

"You can require the contractor to hire the district's existing
workforce, you can require that any staff cuts be through attrition,
you can protect pension benefits. But it's up to the district to demand
those things."

Districts Lag Behind

Although many school districts have long used private firms to
pro8vide a few key services, especially transportation, they have
tended to lag behind other government agencies in contracting out,
experts said.

A 1986 survey by the Wisconsin Expenditure Commission found that
nearly half the state's school districts had no service contracts at
all. And the vast majority of the existing contracts, the report said,
were for one of three services--building maintenance, food service, or
tranportation.

According to the survey, "union resistance and political pressures
to hire local residents" have deterred many officials from contracting
for services.

In a number of states, unions have persuaded the courts that they
should have the right to bargain with district officials over
contracting-out proposals, a process which can add months to the
process.

In Wisconsin, the commission report noted, the Marinette school
district was forced to fight a three-year legal battle with its staff
union before it could contract out for janitorial services.

Teachers Also Worried

Teachers' unions, too, have expressed growing concerns about the
trend towards contracting and what it might mean for them, said Nancy
Needham, a writer for NEA Today who has reported extensively on the
subject.

"Some of the strongest opposition has been in the schools," agreed
Mr. Fixler, the policy analyst for the Reason Foundation. "The
teachers' unions feel that if there is more privatizing, the trend
might eventually get to them," he said. "There are a whole variety of
instructional services that could be looked at."

Some small steps are being taken in that direction. James Boyle, a
Chicago educator, said he has found a strong market for his company,
Ombudsman Education Services Ltd., which contracts with school
districts to provide counseling and remedial help to problem students.
The company, he said, now employees 60 teachers and has clients in
three states.

For the most part, however, union hostility and the skepticism of
many district administrators have combined to stifle experiments with
instructional contracting, said Ted Kolderie, a senior fellow at the
Hubert H. Humphrey Institute of Public Affairs in Minnesota who has
advocated that teachers form independent coalitions and contract with
schools to provide instructional services.

"The system is just stacked against that kind of innovation," he
said.

Vol. 07, Issue 07

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